PSC critical of Spanish utility's merger plan by LARRY RULISON

Iberdrola SA's proposed acquisition of Energy East will hurt state consumers, according to staff reports

ALBANY -- Officials at the state Public Service Commission believe that Spanish utility Iberdrola SA's $4.5 billion acquisition of Energy East Corp. will be bad for New York consumers as planned.
Based in New Gloucester, Maine, Energy East has 3 million customers in New York and New England. Its Rochester-based subsidiary owns New York State Electric & Gas, which serves about 50,000 customers in the Capital Region.

Iberdrola came to the PSC back in August seeking regulatory approval for the deal within six months -- a time period that ended Friday.

PSC approval will take much longer than that. A hearing has been scheduled for Feb. 25, and briefs are due in March. A vote by the PSC's five commissioners has yet to be scheduled.

So far, PSC staff that provide information and recommendations to the commissioners are opposing the deal on several fronts.

"The information we studied provides clear and convincing support for the conclusion that the transaction not only lacks tangible benefits but imposes real, tangible costs and risks to consumers," they said in testimony filed as part of the case on Jan. 11.

The names on specific comments were redacted from the filing so it is unclear which PSC staffer made the comment.

PSC staff were similarly negative at first about National Grid's $7.3 billion acquisition of KeySpan Corp., a deal the PSC approved last August after considerable concessions by National Grid, the dominant utility in the Capital Region.

One of the issues that PSC is concerned about with the Energy East acquisition is that Iberdrola owns wind farms in the state and is developing more.

As part of its deregulation of the energy market in New York state, the PSC encouraged utilities to sell off their power generation plants. Energy East also owns power plants in the state. The PSC staff wants Iberdrola to divest itself of all power plants, even wind.

"Wind developers that are Iberdrola's competitors, when confronted with the vertical market power that the transaction will create, might scale back their projects, or even withdraw from New York," PSC staff testified. "The outcome would be that New York as a whole would be prevented from achieving its renewable generation goals."

New York is seeking to get 25 percent of its energy from renewable sources such as wind and hydro plants by 2013. The program, which provides incentives to wind farms and other projects, is called the Renewable Portfolio Standard.

Iberdrola, in rebuttal testimony filed Thursday with the PSC, said that the merger "presents New York with a unique opportunity" to advance its energy and economic goals.

"Despite the benefits of the proposed transaction and a lack of public opposition, staff treats the proposed transaction as if it were a repeat of the National Grid/KeySpan merger," Iberdrola testified.

Iberdrola also called testimony by PSC staff that the merger would harm the state's renewable energy goals "counterintuitive" and "illogical."

The Iberdrola testimony also said that "no wind developer has even intervened in this proceeding, much less suggested that Iberdrola's acquisition of Energy East would adversely impact wind development in New York."